Are ACOs transforming American health care?

The Beatles leave a Pan Am plane in Boston, Aug. 11, 1966, after a flight from London. (AP Photo) The Beatles leave a Pan Am plane in Boston, Aug. 11, 1966, after a flight from London. (AP Photo)

One part of the Patient Protection and Affordable Care Act that’s hit American health care like the British Invasion is accountable care organizations, or ACOs. At first, there were just a few, then some more and now they’re all over the place, just as The Beatles, The Rolling Stones, the Who, the Kinks and other groups took over American pop culture in the 1960s.

In an ACO, doctors, hospitals, Medicare, providers and patients come together like John, Paul, George and Ringo to coordinate health care with the idea of improving quality and reducing costs. When PPACA was passed, ACOs were touted as a way to lower health care expenditures under Medicare and encourage collaborative care among providers.

ACOs now have been around long enough to quantify some results of their efforts, even though the transition hasn’t been easy. By all appearance, ACOs are going to be around a while so benefits brokers and agents should possess a better understanding of ACOs to better serve clients and beneficiaries.

“It’s not new to health care reform, the concept predates PPACA, but PPACA was really the accelerant to it and put the pilot programs in place,” says Warren Skea, director of PricewaterhouseCoopers’ Health Enterprise Growth Practice.

The current landscape

While a few ACOs were in place before 2010, the number of ACOs reached more than 400 in 2014, with some estimates placing the number at more than 600. And, according to the Kaiser Family Foundation, about 14 percent of the U.S. population is now covered by an ACO arrangement.

The Centers for Medicare and Medicaid Services in January touted the findings of an ACO savings analysis. The analysis said that more than 50 ACOs had managed to save about $380 million. That analysis also said that half of the ACOs that started in in 2012 had already managed to lower costs.

“These innovative programs are showing encouraging initial results, while providing valuable lessons as we strive to improve our nation’s health care delivery system,” said Kathleen Sebelius, Health and Human Services Secretary at the time. “Organizations of various sizes and structures across the country are working with their physicians and engaging with patients to better coordinate and deliver high-quality care while reducing expenditure growth.”

More and more health care providers are joining ACOs, too. Regional and local hospitals, physician groups, independent physicians associations and nonprofits are well represented in ACO agreements across the country. Some very large players in the health care began exploring ACOs before PPACA, such as Aetna, and others have gotten into the game as well, including Blue Cross and Anthem.

A new model

An ACO is basically a different model for the delivery and payment of health care services. In an ACO, providers are compensated by keeping patients healthy, reducing inefficiency and redundancy and implementing preventative medicine initiatives. Traditionally, health care used a fee-for-service model, which can lead to unnecessary tests, procedures or therapies.

While an ACO can still charge for services, the payers and providers voluntarily work together to coordinate care, which means a particular test, for example, gets shared within an ACO and not repeated by another doctor or hospital. ACOs are required by law to meet 33 quality standards, treat chronic conditions and can be penalized for not meeting efficiency and quality requirements. The ACO essentially works under Medicare, which serves as the primary payer with public and private health care providers responsible for providing care.

Read: Hospitals wary of ACOs

“I had one client tell me, ‘Warren, this is new and we do have to have new skill sets. One floor below us, I have a whole floor of biostatisticians and actuaries and a few years ago, I would never have needed those individuals,’” says Skea. “It’s very different from the old model. There will be those that can make the leap and manage it but for others it’s very different — for executives and physicians alike.”

The CMS defines three different types of ACOs. The Pioneer ACO Model was designed for early adopters of coordinated care under PPACA. That law only pertains to some of the current ACOs active in the market, though. Most ACOs operate under the Medicare Shared Savings Program, which allows for traditional fee-for-service providers to shift from that model of healthcare payment to the ACO model and share in the savings. Lastly there’s the Advance Payment ACO, which is basically an incentive program for some ACOs in the Medicare Shared Savings Program.

“If you’ve seen one ACO, you’ve seen one ACO,” Skea says. “I don’t think there’s one model or blueprint for getting an ACO up and going. And that’s somewhat by design. Even though there’s a lot of issues that are common, health care is still practiced and received locally. The organizational aspects and the market aspects are very local. One in Western Colorado will look different from one in New York and that will be different from one in Florida because of the participants. This model turns traditional fee-for-service on its head. You’re changing the reimbursement model.”

ACO skeptics have been quick to point out the similarities of the model to health maintenance organizations, or HMOs. There’s one key difference, though: Patients aren’t required to stay within a network to get health care.

Read: HMOs vs. ACOs

Inside an ACO

Aetna began Accountable Care Solutions back in 2007 — before PPACA — when the company began coordinating care for its Medicare Advantage members. Aetna found that decreasing duplicate or unnecessary services not only improved outcomes but their members required 43 percent less acute hospital care in 2010. Aetna then expanded the model to physician groups, hospitals and providers nationwide.

Now, Aetna has care agreements with 36 health systems and providers across the nation and covers 550,000 people under an ACO. By the end of 2014, Aetna expects to have 850,000 members in accountable care arrangements and 20–25 percent of their medical costs coming from a value-based network.

While Aetna’s ACO arrangements have been successful and seem poised for growth, it wasn’t an easy transition to make, says Gary Thomas, chief operating officer for Accountable Care Solutions.

“While every organization we work with faces a unique set of challenges, there are some common obstacles that most providers face when transitioning to an ACO model,” Thomas says. “The first is managing the cultural change required to make the transformation to value-driven care. Organizational leadership must be able to successfully communicate the vision, attain buy-in at all levels and be willing to invest in the change. Change management efforts are much more successful if the organizational culture supports collaboration and openness to new ideas.

Thomas adds that another challenge in transitioning to an ACO is incorporating technology that encourages collaboration across care settings and allows medical professionals access to information at the right time during care. Thomas adds that many electronic health records programs were developed in a fee-for-service world, not an ACO world.

Thomas also says Aetna helps its providers overcome another challenge in the ACO transition by helping hospitals, for example, recoup lost revenue from empty beds by helping them expand their market share.

Aetna’s collaboration with Banner Health Network in Phoenix, among others, is showing measurable cost savings, including reductions in hospital admissions, length of stay and readmissions. Across patient populations served by Banner in 2012, here are some of the year-over-year improvements:

  • 3–5.5 percent medical cost savings over prior 12 months
  • 1–8 percent increase in primary care provider visits
  • 7–8 percent reduction in hospital admissions
  • 0.5–1 percent reduction in hospital readmission rate
  • 3–7 percent reduction in high tech radiology utilization

“These results not only quantify cost reductions but they also speak to improvements in quality and care coordination, such as reductions in avoidable hospitalizations and readmissions,” Thomas says. “Banner was able to reduce costs for individuals and employers as well through Aetna Whole Health, a health plan product it launched with Aetna based on the ACO network. The product utilizes plan designs that allow individuals and employers to take full advantage of the results listed above. In addition, the products can be priced anywhere from 8–15 percent below prevailing market rates because they take advantage of a more efficient and quality-focused care model.”

For brokers and agents

It looks like ACOs are here to stay, so it’s important for benefits professionals to be familiar with how they work — and how they reduce costs. Any broker or agent needs to be an expert in all health care options in a nation under PPACA; after all, they might hear questions from an HR person, CEO or even patients themselves. 

“Through our co-branded health plans, we work jointly with the ACO provider to market the health plans and educate consumers about the additional benefits they receive by being part of an ACO plan,” Thomas says.

“We also offer a variety of care management and patient engagement tools to help enhance the overall patient experience. For example, we provide smartphone apps that simplify day-to-day tasks like finding a doctor or scheduling an appointment, resulting in more convenient, personalized interactions. Likewise, our care management tools help to simplify the care of chronic conditions at home, which both strengthens the doctor-patient relationship and builds loyalty for the ACO.”

Whether ACOs have a lasting legacy like lads from Liverpool remains to be seen. But for now, they appear to be on a long and winding road.

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